Contagion Between Public And Private Markets

1 month ago 30

Danielle Park, CFA profile picture

Summary

  • The average sale price for a Toronto home in July was $1.02 million (Toronto Regional Real Estate Board), down $133,075 (11.5%) from June 2022 and +0.2 percent or $2,520 compared to July 2021.
  • Sales were down 44%, and active listings were up 25%, while the stockpile of available homes was up 58% from a year ago.
  • Over the last six months, Toronto’s average sale price has dropped more than $500,000.

Property for sale and rent in Canada concept, 3D rendering

AlexLMX/iStock via Getty Images

The average sale price for a Toronto home in July was $1.02 million (Toronto Regional Real Estate Board), down $133,075 (11.5%) from June 2022 and +0.2 percent or $2,520 compared to July 2021. Sales were down 44%, and active listings were up 25%, while the stockpile of available homes was up 58% from a year ago.

Over the last six months, Toronto’s average sale price has dropped more than $500,000.

So much for all the hopium about “rich Torontonians” being rate insensitive; high-priced houses are seeing some of the deepest declines:

It would appear that eroded affordability is hitting Toronto-based homebuyers the hardest; detached prices in the city proper are down 7.3%, though still sit at a hefty $1,515,762, with sales down 46.9%. Compared to February, when the average exceeded the $2M mark, Toronto house prices have slid a whopping $558,226 (-26%). A large chunk — a difference of $221,250 — has been lost in the last month alone.

Declines are still steep, though slightly less pronounced, in the 905 markets. TRREB reports prices have dropped 1.9%, to $1,320,269, down by $407,694 from February (-23.5%). Month over month, they’re down 3%. Sales in the suburban and exurban markets are down 46.9%, says TRREB.

This predictable but widely unexpected downturn (after prices doubled in record time) is sparking a classic cash crunch among highly leveraged owners and their lenders; see 'Goodbye housing bubble, you won't be missed':

House flippers thought they’d actually earned something, when they often just shuffled money around and waited. Now they don’t want to admit the fun is over, and figure if they just sit tight long enough, the market will turn foolish again and they can still get their big cash-out.

Related trouble in the illiquid private equity world is just beginning as funds will be forced to mark assets to market and sell some properties to meet redemption requests; see 'Investors sell stakes in buyout funds at a record pace'

And then there are all of the institutions, pensions, family offices and other investors who piled into ‘alternative’ funds concentrated in real estate and related lending as well as high-risk venture bets during the ‘easy’ money era.

As debt and equity prices tumble, required rebalancing and redemptions naturally force selling in the ‘alternatives’ where illiquidity tends to magnify price discounts. For a taste, see: 'Market Rout Sends State and City Pension Funds to Worst Year Since 2009' Meanwhile, the private equity and real estate losses since March 31st have not yet been reflected in portfolio values.

Disclosure: No positions

Original Post

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.

This article was written by

Danielle Park, CFA profile picture

Portfolio Manager, financial analyst, attorney, finance author, a regular guest on North American media. Danielle Park is the author of the best selling myth-busting book “Juggling Dynamite: An insider’s wisdom on money management, markets and wealth that lasts,” as well as a popular daily financial blog:www.jugglingdynamite.com Danielle worked as an attorney until 1997 when she was recruited to work for an international securities firm. A Chartered Financial Analyst (CFA), she now helps to manage millions for some of Canada's wealthiest families as a Portfolio Manager and analyst at the independent investment counsel firm she co-founded Venable Park Investment Counsel Inc. www.venablepark.com. For two decades, Danielle has been writing, speaking and educating industry professionals and investors on the risks and realities of investment behaviors. A member of the internationally recognized CFA Institute, Toronto Society of Financial Analysts, and the Law Society of Upper Canada. Danielle is also an avid health and fitness buff.

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